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Importance of National Income Analysis
5 / 5 ( 1 vote ) DOWNLOAD X VIDEOS MOD APK Importance of National Income Analysis 1. For the Economy- The national income data are of great importance for the economy of a...
Importance of National Income Analysis
BY PRITAMKURREY111 · JUNE 7, 2022
5 / 5 ( 1 vote )DOWNLOAD X VIDEOS MOD APK
Importance of National Income Analysis
1. For the Economy- The national income data are of great importance for the economy of a country. These days the national income data are regarded as accounts of the economy, which are known as social accounts. These refer to net national income and net national expenditure, which ultimately equal each other. Social accounts tell us how the aggregates of a nation’s income, output and product result from the income of different individuals, products of industries and transactions of international trade. Their main constituents are inter-related and each particular account can be used to verify the correctness of any other account.
2. National Policies- The national income data form the basis of national policies such as
employment policy, because these figures enable us to know the direction in which the industrial output, investment and savings, etc. change, and proper measures can be adopted to bring the economy to the right path.
3. Economic Planning-In the present age of planning, the national data are of great importance. For economic planning, it is essential that the data pertaining to a country’s gross income, output, saving and consumption from different sources should be available. Without these, planning is not possible.
4. Research- The national income data are also made use of by the research scholars of economics. They make use of the various data of the country’s inputs, outputs, income, saving, consumption, investment, employment, etc., which are obtained from social accounts.
5. Per Capita Income- The national income data are significant for a country’s per capita income which reflects the economic welfare of the country. The higher the per capita income, the higher the economic welfare and vice versa.
6. Distribution of Income- The national income statistics enable us to know about the distribution of income in the country. From the data pertaining to wages, rent, interest and profits, we learn of the disparities in the incomes of different sections of the society. Similarly, the regional distribution of income is revealed. It is only on the basis of these that the government can adopt measures to remove the inequalities in income distribution and to restore regional equilibrium. With a view to removing these personal and regional disequilibria, the decisions to levy more taxes and increase public expenditure also rest on national income statistics.
National Income Accounting in Developing Countries in: Finance & Development Volume 5 Issue 002 (1968)
Despite their limitations, the national income accounts constitute in both developing and developed countries what is probably the most effective tool available for the assessment of over-all economic performance and development.
National Income Accounting in Developing Countries
Author: Emanuel Levy
Publication Date: 01 Jun 1968
eISBN: 9781616352905
ISBN: 9781616352905 Language: English
Keywords: FD; F&D; country; Fund; central bank; economy; cost; aggregate estimate; net product estimate; value of goods; economic process; estimate of price; Manufacturing; Private consumption; Consumption; National income; Global
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Abstract
Despite their limitations, the national income accounts constitute in both developing and developed countries what is probably the most effective tool available for the assessment of over-all economic performance and development.
Emanuel Levy
THE WORKING of even the least developed economy involves innumerable transactions between individuals, enterprises, and organizations, and most countries today compile and publish a varying range of primary statistics reflecting these transactions in individual branches and sectors of the economy. These statistics assist decisionmaking in the branches and sectors to which they relate. They do not, however, meet the needs of economic analysts and policymakers whose concern is to understand and influence the economic process as a whole. For this purpose, it is necessary to organize and consolidate the mass of primary statistics and information into a system designed to bring out the main national economic aggregates and interrelationships pertaining to income, product, and expenditure. This is what is achieved by the national income accounts.
Ideally, these accounts reflect within an integrated framework the structure, level, and trend of activity in all important branches and sectors of the economy. As a result, and depending on the diversity of the economy and the availability of data, they frequently form an intricate and complex pattern, In brief, however, the focal point of the system can be taken to be the summary account depicting the total resources available to the economy and the major end-uses to which they are put. Resources, in this context, comprise the value of goods and services produced by the domestic economy (gross domestic product) less goods and services sold abroad (exports) plus goods and services acquired from abroad (imports). The major end-uses are private consumption, government consumption, and capital formation (investment).
Details of the composition of these major aggregates are provided in separate tables relating to individual branches and sectors. Additional tables summarize the receipts and expenditures of households, government, and the foreign trade sector, from which are derived estimates of national saving and foreign capital inflow. These latter estimates can also be combined in a further account showing the absolute and relative contributions of national saving and foreign capital to the finance of domestic investment.
The Purpose of National Accounting
To fulfill their purpose, the national income accounts should provide three categories of information on the major aggregates:
(a) the absolute size of the aggregates;
(b) long-term trend;
(c) short-term (annual) changes and fluctuations.
Accurate information on the absolute size of the aggregates is obviously necessary in assessing both the degree of development and the structural pattern of the economy. It is also a prerequisite for the determination and analysis of the interrelationships existing between the aggregates, such as capital formation and national saving, capital-output ratios, private consumption and disposable income, government consumption and the gross domestic product, etc. Many aspects of market analysis and research likewise depend on this type of information.
A reasonably reliable picture of the trend over, say, the past 10 or 15 years is essential in order to form an opinion as to how the economy is performing, in which direction and at what rate it is moving, and whether medium and long-term aims are being achieved. This information is also an indispensable basis for sound projections into the future. Without reliable estimates of aggregate and per capita rates of growth of product, consumption, capital formation, etc., in the past, it is impossible to estimate what is likely to happen in the future.
The question of long-term trend is also bound up with the development process per se. In all countries, economic growth is accompanied by or gives rise to structural changes and adjustments in the economy. But whereas in developed economies these changes and adjustments are largely incidental to the growth process and are not likely to be pronounced except over a considerable period of time, in developing countries they are fundamental to the growth process itself. A developing economy is one in which not only the national product is increasing but one in which the industrial composition of the product and the economic structure itself are undergoing considerable change. Indeed, the rate at which these changes are occurring is often in itself a measure of the rate at which development is proceeding.
The basic structural change characteristic of a developing economy is usually a relative decline in agricultural net product, and a corresponding rise in manufacturing, construction, and services. But beneath the surface, other and more profound changes occur. With the introduction of new crops and production techniques in agriculture, the composition of agricultural net output and input may change considerably, together with the absolute and relative level of farm income. This may be still more true of manufacturing, where new industries are being established and domestic production progressively increased. At the same time, the process of development will generally be reflected in the emergence of a growing wage and salary earning class whose share in the national income may be expected to increase steadily. These and similar changes occurring over time need to be reflected adequately in any properly constructed set of national income accounts.
Importance of National Income Studies : 11 Reasons
ADVERTISEMENTS: The following points highlight the top eleven reasons for growing importance of national income studies in recent years. The reasons are: 1. Economic Policy 2. Economic Planning 3. Economy’s Structure 4. Inflationary and Deflationary Gaps 5. Budgetary Policies 6. National Expenditure, 7. Distribution of Grants-in-aid and Others. Reason # 1. Economic Policy: National income […]
Importance of National Income Studies : 11 Reasons
Article Shared by ADVERTISEMENTS:
The following points highlight the top eleven reasons for growing importance of national income studies in recent years. The reasons are: 1. Economic Policy 2. Economic Planning 3. Economy’s Structure 4. Inflationary and Deflationary Gaps 5. Budgetary Policies 6. National Expenditure, 7. Distribution of Grants-in-aid and Others.Reason # 1. Economic Policy:
National income figures are an important tool of macroeconomic analysis and policy.
National income estimates are the most comprehensive measures of aggregate economic activity in an economy.
ADVERTISEMENTS:
It is through such estimates that we know the aggregate yield of the economy and can lay down future economic policy for development.
Reason # 2. Economic Planning:
National income statistics are the most important tools for long-term and short-term economic planning. A country cannot possibly frame a plan without having a prior knowledge of the trends in national income. The Planning Commission in India also kept in view the national income estimates before formulating the five-year plans.
Reason # 3. Economy’s Structure:
National income statistics enable us to have clear idea about the structure of the economy. It enables us to know the relative importance of the various sectors of the economy and their contribution towards national income. From these studies we learn how income is produced, how it is distributed, how much is spent, saved or taxed.
Reason # 4. Inflationary and Deflationary Gaps:
National income and national product figures enable us to have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary and deflationary policies, we need regular estimates of national income.
Reason # 5. Budgetary Policies:
ADVERTISEMENTS:
Modern governments try to prepare their budgets within the framework of national income data and try to formulate anti-cyclical policies according to the facts revealed by the national income estimates. Even the taxation and borrowing policies are so framed as to avoid fluctuations in national income.
Reason # 6. National Expenditure:
National income studies show how national expenditure is divided between consumption expenditure and investment expenditure. It enables us to provide for reasonable depreciation to maintain the capital stock of a community. Too liberal allowance of depreciation may prove harmful as it may unnecessarily lead to a reduction in consumption.
Reason # 7. Distribution of Grants-in-aid:
National income estimates help a fair distribution of grants-in-aid by the federal governments to the state governments and other constituent units.
Reason # 8. Standard of Living Comparison:
National income studies help us to compare the standards of living of people in different countries and of people living in the same country at different times.
Reason # 9. International Sphere:
ADVERTISEMENTS:
National income studies are important even in the international sphere as these estimates not only help us to fix the burden of international payments equitably amongst different nations but also enable us to determine the subscriptions and quotas of different countries to international organisations like the UNO, IMF, IBRD. etc.
Reason # 10. Defence and Development:
National income estimates help us to divide the national product between defence and development purposes. From such figures we can easily know how much can be spared for war by the civilian population.
Reason # 11. Public Sector:
National income figures enable us to know the relative roles of public and private sectors in the economy. If most of the activities are performed by the state, we can easily conclude that public sector is playing a dominant role.
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